Home Sales Rising to Two-Year High Spur U.S. Growth: Economy

Demand for new houses was up 27.1 percent from a year ago, today’s Commerce Department report showed. Photographer: Daniel Acker/Bloomberg

Oct. 24 (Bloomberg) -- Americans bought new homes in
September at the fastest pace in two years, another sign the
industry whose decline was at the heart of the recession is
bouncing back.

Sales climbed 5.7 percent to a 389,000 annual pace, the
most since April 2010, following a revised 368,000 rate in
August, figures from the Commerce Department showed today in
Washington. The median estimate of 75 economists surveyed by
Bloomberg called for an increase to 385,000.

Population growth and mortgage rates pushed to record lows
by Federal Reserve purchases of housing debt are generating
sales for builders like Toll Brothers Inc. and spurring the
three-year economic recovery. Housing starts in September jumped
15 percent to the fastest pace since July 2008, a report last
week showed.

“All the things that were really holding back housing are
finally starting to lift,” said Guy Berger, a U.S. economist at
RBS Securities Inc. in Stamford, Connecticut, who projected
sales would climb to 390,000. “It really is tough to find any
bad signs here. Inventories are very, very lean. Assuming the
economy remains on track, housing should continue to improve for
the rest of the year and into 2013.”

Stocks fell, erasing earlier gains, after the Fed said
employment growth is slow and strains in financial markets
continue to pose risks to the economy. The Standard & Poor’s 500
Index dropped 0.3 percent to 1,408.75 at the close in New York.
Treasury securities declined, sending the yield on the benchmark
10-year note up to 1.79 percent from 1.76 percent late
yesterday.

China Manufacturing

A preliminary report showed a Chinese purchasing managers’
index climbed this month, boosting confidence that the world’s
second-biggest economy is stabilizing. The 49.1 reading for
October was up from 47.9 the prior month and just shy of the 50
level that is the dividing line between contraction and growth,
according to data from HSBC Holdings Plc and Markit Economics.

The news today wasn’t as positive elsewhere as euro-area
services and manufacturing output contracted more than
economists forecast in October and German business confidence
dropped to the lowest in more than 2 1/2 years as Europe’s
recession deepened.

The Bloomberg survey estimates for U.S. new-home sales
ranged from 370,000 to 410,000. The August reading was
previously reported as a 373,000 annual rate.

A government tax credit helped boost sales in April 2010,
the last time they were this strong.

Fed Action

Fed policy makers today said the economy is still growing
modestly and unemployment remains elevated as they maintained $40
billion in monthly purchases of mortgage-backed securities aimed
at spurring the three-year expansion.

“Growth in employment has been slow,” the Federal Open
Market Committee said today at the conclusion of a two-day
meeting in Washington. “Household spending has advanced a bit
more quickly.”

Demand for new houses was up 27.1 percent from a year ago,
today’s report showed. The median price for a new house climbed
11.7 percent in September from the same month last year to
$242,400.

Purchases increased in three of four regions last month, led
by a 16.8 percent gain in the South and a 16.7 percent increase
in the Northeast. Sales in the Midwest dropped 37.3 percent, the
biggest decrease since January 1994.

A jump in housing starts in September was the latest sign
the new-home industry is showing signs of vitality. Beginning
construction rose last month to an 872,000 annual rate, the
fastest pace since July 2008 and exceeding all forecasts in a
Bloomberg survey, Commerce Department figures showed Oct. 17.

Months’ Supply

Supporting future construction, the supply of homes at the
current sales rate dropped to 4.5 months, the lowest since
October 2005, from 4.7 months in August, today’s report showed.
There were 145,000 new houses on the market at the end of
September.

Residential construction hasn’t contributed to economic
growth over the course of an entire year since 2005, when it
accounted for 0.4 percentage point of the 3.1 percent increase
in gross domestic product. From 2006 through 2009, the
homebuilding slump subtracted 0.8 percent point from growth on
average. The declines diminished over the past two years.

Home building contributed 0.3 percentage point to growth on
average in the first half of 2012.

The building environment has made construction companies
less pessimistic. The National Association of Home
Builders/Wells Fargo builder sentiment index increased to 41
this month, the highest since June 2006 and the sixth-straight
gain, figures showed yesterday. Still, readings below 50 mean
more respondents said conditions were poor.

Rising Orders

Horsham, Pennsylvania-based Toll Brothers, the largest U.S.
luxury-home builder, reported a 57 percent increase in orders
for the quarter ending in July over the previous year.

“We continue to see some early but consistent signs of
housing recovery, which makes us increasingly optimistic about a
more structural demand recovery,” Marc Bitzer, president of
Whirlpool North America, said during an Oct. 23 earnings call.
Shares of Benton Harbor, Michigan-based Whirlpool Corp., the
world’s largest appliance maker, today reached the highest level
in more than two years after the company lifted its 2012
earnings forecast.

The existing homes market is also improving. Figures from
the National Association of Realtors last week showed previously
owned homes sold at a 4.75 million rate in September and a 4.83
million rate in August, the strongest back-to-back pace since
mid-2010.

Contract Signings

Sales of new homes are considered a timelier barometer than
purchases of previously owned dwellings, which are calculated
when a contract closes. Newly constructed houses accounted for
6.7 percent of the residential market in 2011, down from a high
of 15 percent during the boom of the past decade.

Cheap borrowing costs are underpinning a recovery. The
average 30-year fixed rate mortgage was 3.37 percent in the week
ended Oct. 18, near a record-low of 3.36 reported Oct. 4,
according to data from Freddie Mac that dates back to 1971.

Another boon for housing, the number of households in the
U.S. grew 2 percent in 2011, the biggest gain in 10 years, to
119.9 million, according to the most recent Census Bureau data.